Category: Blog

Pension funds have the potential to ignite Africa’s infrastructure revolution

Posted on by Kihingu Inc

Across Africa, economic growth and development have gained significant momentum in recent years. But with growth comes a challenge: building and funding the infrastructure to support it.

Where will the funding for Africa’s new infrastructure come from? This remains a crucial question. One solution that offers great potential is pension funds: a vast pool of long-term capital that could be channelled towards infrastructure, with a focus on climate change adaptation.

The importance of infrastructure

Infrastructure is the backbone of any thriving society, enabling connectivity and access to services. In Africa, better infrastructure is pivotal to progress – building bridges that connect communities, power plants that illuminate cities, schools that nurture young minds and hospitals that save lives. But the scale of infrastructure development required across the continent is substantial. And this means a significant amount of funding is needed.

Harnessing pension funds

African pension funds have grown rapidly in recent years, accumulating substantial capital. Instead of letting this money sit idle, pension funds could invest a portion of it in infrastructure projects.

With their long-term outlook and stable cash flows, pension funds are well suited for investing in projects that require longer periods of time and large amounts of resources – as many infrastructure projects do.

Win-win scenario

When pension funds invest in infrastructure, it creates a win-win situation. Infrastructure investment entails improved transport, better energy access and upgraded healthcare facilities, which all contribute to economic growth and enhanced quality of life for people in the region.

In addition, infrastructure projects generate long-term revenue streams, like toll fees from highways or electricity sales from power plants, providing pension funds with steady cash flows, and supporting future retirement payments.

Nigeria and South Africa

 Several African countries have already begun to recognise the value of investing pension fund assets in infrastructure:

  • Nigeria: The Nigerian Sovereign Investment Authority has used pension assets to finance key infrastructure projects, including roads, power generation and healthcare facilities. These investments have greatly improved connectivity and quality of life for many Nigerians.
  • South Africa: The Public Investment Corporation has been vital in financing infrastructure projects, including renewable energy initiatives. These investments are contributing to South Africa’s sustainability goals and fostering a greener future.

Covid recovery and sustainable investment

 The Covid-19 pandemic has severely impacted Africa’s economy, but the recovery effort has provided an opportunity to prioritise sustainable infrastructure investments. By allocating a portion of their portfolios to infrastructure projects, pension funds can help drive economic recovery while ensuring long-term returns. In Ghana, for example, the Social Security and National Insurance Trust has been actively investing in infrastructure projects to support the country’s recovery efforts.

Climate change resilience

Africa is particularly vulnerable to the effects of climate change. This is an important consideration when financing new infrastructure. Pension funds can help the continent build a climate-resilient future by prioritising investments in renewable energy, climate-smart agriculture and resilient urban planning. In Kenya, for example, the government has invested in a number of renewable energy projects, like geothermal power plants. This not only helps to fight climate change, but also provides sustainable energy solutions for the country.

Building a sustainable future

African governments, supported by international organisations like the World Bank and the African Development Bank (AfDB), have already implemented recovery plans that emphasise infrastructure as a key strategy to stimulate growth and improve the lives of ordinary Africans. Continuing this momentum and recognising the potential of pension funds to finance infrastructure, will be essential for Africa’s financial development.

As African nations continue to grow and evolve, the deployment of pension funds in infrastructure projects stands as a beacon of sustainable development. These investments will do more than build roads, power plants, and hospitals; they will weave a fabric of connectivity, opportunity, and stability that will endure for centuries.

Money Does Grow on Trees

Posted on by TIMOTHYRADIER

In September 2023, Kenya held the first Africa Climate Summit, that brought together players from the private and public sectors from various African nations and engaging stakeholders from outside the continent. The Summit provided a platform for discussions around strategies that would mitigating and building resilience against climate change. Among other topics, adoption of innovative solutions such as agroforestry, as a mean to combat climate change and preserve our planet’s ecosystem, was discussed.

Despite being centuries old, agroforestry which aligns with modern sustainability development goal, has been gaining traction in the recent years. The fusion of agriculture and forestry holds the potential to unlock both environmental benefits and economic opportunities. Notably, it enables the trade of carbon credits, offering financial incentives to those who embrace sustainable land management and carbon sequestration through climate-smart agriculture.

Agroforestry presents a powerful solution for carbon sequestration, leveraging the natural capacity of trees as carbon sinks. Smallholder farmers can significantly reduce carbon footprints through offsetting emissions by integrating trees with crop cultivation hence practise smart climate agriculture. This transition offers them the potential for financial gain through participation in carbon trading, ultimately enhancing their livelihoods and benefiting local communities at large.

The adoption of agroforestry not only delivers environmental benefits but also fosters economic empowerment, achieved through incentivising sustainable practices, thus the small-holder farmers can benefit economically by adopting environmentally friendly techniques. Agroforestry empowers the farmers to diversify their income streams and reap the benefits of practising sustainable land management such as improvement of soil quality and curbing climate change while preserving the planet for future generations.

Additionally, local communities can harness the revenue generated from carbon sequestration projects. Community development in healthcare, education and infrastructure can be enhanced by reinvesting the income form the carbon sequestration projects. And so, The advantages of agroforestry extend beyond individual farmers and communities. Entire countries and the African continent as a whole stand to gain from cleaner air, healthier ecosystems, and increased environmental resilience.

To realize this potential, African governments, the private sector and non-governmental organizations should recognize the value of agroforestry and provide support to accelerate its adoption. Actions that encourage agroforestry and facilitate access to carbon markets can advance the growth of this transformative and innovative practice.

Promoting actions that encourage agroforestry and facilitate access to carbon markets can drive the growth of this transformative and innovative practice. Development organizations such as the African Development Bank, International Fund for Agricultural Development and Green Climate Fund are funding programmes that enable carbon sequestration in Africa. Their initiatives have over time supported restoration and conservation of the African biodiversity, soil, and water systems. These mechanisms have aided in powering the transformation of African landscapes into hubs of carbon sequestration.

Evidently, it is the achievement of the Acorn Agroforestry Carbon Programme by the Rabobank through its partnership with project coordinators including FSD Africa and cooperatives working directly with smallholder farmers in Africa, among other partners. Through the programme, the smallholder farmers particularly those in areas impacted by climate change, are enabled to transit to agroforestry.

The smallholder farmers are equipped to earn additional income through sequestering carbon from their carbon-capturing agroforestry; as the continent’s air gets cleaned up.

Therefore, agroforestry with its capacity to offset carbon emissions and improve the well-being of African communities, magnifies the synergy of environmental conservation and economic prosperity. It underscores the promise of sustainability as a pathway to a greener and more resilient future.

Beyond being a financial asset, carbon credits harvested from agroforestry projects serve as a testament to the harmonious coexistence of nature and humanity, representing an investment in a future where our planet becomes healthier from the choices we make today.

Africa, endowed with biodiversity and natural resource that offers an opportunity for environmental and economic transformation. Carbon. Carbon sequestration in Africa is not merely a dream but a tangible and innovative solution demonstrating that indeed that money does indeed grow on trees, which are our partners safeguarding the environment and securing our future. These trees are the lungs of our planet.

Pioneering Fund to help realise Africa’s green infrastructure aspirations

Posted on by TIMOTHYRADIER

By Ralph Gilcrist, FSDAi Advisor and Amos Gachuiri, FSDAi Senior Manager, Investments

Africa has a huge social and green infrastructure deficit. To close this gap, funding shortfalls must be addressed.

FSD Africa Investments (FSDAi), the investment arm of FSD Africa which receives funding from UK’s Foreign, Commonwealth & Development Office (FCDO) , has committed to help establish a pioneering export credit finance fund, Acre Export Finance Fund, specifically for the development of green and social infrastructure in Africa. Acre Impact Capital is a newly established fund manager raising a US$300 million fund to invest in climate-aligned essential infrastructure in Africa alongside various export credit agencies (“ECAs”). In doing so, it aims to prove the case for a new investment asset class on the continent – ECA-backed debt securities as an appropriate high-impact mechanism to deliver financing for the much-needed infrastructure services (e.g. access to water, clean energy, safe and green transportation, etc.). This new asset class will give impetus to Africa’s green aspirations by diversifying financing sources towards Africa’s infrastructure financing demands.

In the world’s more developed economies and increasingly in developing economies, ECAs provide financial support to exporters from their home countries, usually in the form of financial guarantees. These allow sovereign borrowers to raise long-term loans at favourable rates from banking institutions. But ECAs only guarantee a portion of the total funding requirement (typically 85%), leaving an uncovered funding shortfall required to complete the deal. This is the funding gap that Acre aims to fill. In doing so, Acre will be able to take advantage of the sovereign guarantees offered to the main ECA-backed funding tranche, which have historically low rates of default.

Acre has been involved in recent ECA transactions in Africa on an advisory basis, highlighting the kind of deals that it may eventually invest in and in anticipation of the fund’s first closing later this year. One such transaction involved €225m of loans provided to the Ministry of Finance in of a West African country to build three regional hospitals. 85% of the total funding was guaranteed by a European ECA and provided by a European bank to purchase services from an experienced healthcare contractor with long experience of building and running three public hospitals which will add significant capacity to the country’s health infrastructure and provide free health services at the point of use. An African ECA provided guarantees for 85% of the balance, which was funded by local African banks and institutional investors, leaving only €5m as the residual, uncovered portion. This loan was warehoused for Acre by an asset manager and Acre has an option to acquire this portion when the Fund closes later this year.

The Eurobond markets have all but dried up for many emerging market issuers as USD and EUR interest rates have risen which in turn has occasioned a flight to safety. The availability of an ECA-backed funding package means that a creditworthy sovereign borrower (e.g. Cote d’Ivoire, Senegal, Angola) can still fund the purchase of basic infrastructure, underlining a key advantage of ECA financing as counter-cyclical source of financing when capital markets are challenged. In addition, in the example above, the involvement of a locally based ECA and financiers also ensures a substantial level of local procurement and the terms of the funding (15 years for the ECA-backed portion in Euros with solid security) means that this type of funding instrument should appeal to long-term institutional investors, both international and local.

Acre Impact Capital’s Export Finance Fund is anticipated to have substantial developmental impact whilst generating attractive risk adjusted returns to investors. It will enable many worthwhile green and social infrastructure projects to proceed with the availability of financing and go a long way towards demonstrating the attractiveness of ECA-backed debt securities to institutional investors, thereby potentially crowding in private sector investment. FSDAi has invested £10m into the fund thereby encouraging the participation of other strategic and financial investors to reach an anticipated first close of $100m. With enough demonstration effect, Acre’s strategy should spur further interest in ECAs as an attractive source of financing and attract local institutional capital in such future structures and increase the share of infrastructure projects on the continent that tap into ECAs for funding.

Mark Napier: Africa’s leaders seize the climate initiative

Posted on by TIMOTHYRADIER

As international headlines chart the terrible suffering caused by flooding, earthquakes and wildfires, a less headline-grabbing, but nonetheless hugely significant, good news story has emerged from Nairobi, Kenya. The African Climate Summit, which concluded on September 6, was a huge success story for Africa and for Kenyan President William Ruto.

Pledges directed to African climate change adaptation and litigation amounting to $26bn have emerged from the summit. That’s not enough to solve Africa’s climate challenges, but even if only a fraction of this sum materialises, it will have a real impact on the ground.

Even more consequential in the long term is the consensus that emerged from the conference around the need for economic growth that delivers both prosperity and environmental benefits. The fact that a consensus was achieved is significant, because it strengthens Africa’s position for the forthcoming COP28 conference in Dubai in November. Furthermore, the admission of the African Union to the G20 means the African voice is getting louder and clearer on the world stage.

Importantly, the summit’s adoption of the Nairobi Declaration, which commits African countries to develop and implement “policies, regulations and incentives aimed at attracting local, regional and global investment in green growth and inclusive economies”, is also a signal that Africa will look for other strategies to support climate action, alongside the $100bn a year promised by developed nations in 2009.

Indeed, the summit was most of all an assertion of African self-determination and specifically the need to mobilise Africa’s domestic private capital in the continent’s climate efforts. Relying on international finance creates a dependency that Africa does not want. Put simply, Africa has determined that its own resources must be channelled, supported by a financial market architecture which ensures that states can absorb climate finance effectively, distributing it where it is most needed.

But if it is to do this, the current situation – in which less than 0.5% of domestic institutional assets under management are invested in alternative assets – cannot continue. As was argued powerfully at the launch of the Pan-African Fund Managers’ Association at the beginning of the summit, we need to think about how we can put in place not only the policy and regulatory incentives but also the instruments and the financial architecture to drive much more of the$1.4tn of institutional capital in Africa towards climate and nature-positive projects.

Crucially, this will mean more use of de-risking strategies such as credit guarantees to persuade pension funds to de-emphasise the easy but less safe option of government securities and to invest in green assets. It will also require sources of donor and philanthropic capital to step up their support for project development, for example through the use of challenge funds or by investing in intermediaries that are closer to the market as a way of reaching the more innovative start-ups and entrepreneurs who will drive the new green economy.

[Current] global prudential regulations can make it economically impossible for large institutional investors to allocate capital to African projects.

Moreover, the summit underlined an important issue that has seen Africa’s financing needs neglected, namely the need for reform of the global prudential regulations, which can make it economically impossible for large institutional investors to allocate capital to African projects. There should be a global review of these constraints, perhaps led by the G20.

Even with such reforms, African governments, many of which are battling with high levels of debt, will need to be both agile and visionary if they are to compete at a time when the world’s biggest economies are offering big incentives to attract green investment. Though deeply political, carbon taxes could be one way to go, but would need to be sensitively introduced. Other green fiscal incentives, balancing out tax breaks for green investment by removing subsidies for dirty industries, are also essential for governments to be able to direct their economies towards a greener future.

The UN Framework Convention on Climate Change has just released its first global stocktake report, highlighting yet again that, despite a major global effort, progress since the Paris Agreement has been inadequate. The report recommends greater commitment to transformation across all sectors and recognises the need for more access to climate finance for developing countries in line with the key recommendations from the Nairobi Summit.

If we get this right, the prize is very significant and the message from the summit is that Africa will not wait. Instead, it is determined to grab the opportunities of a new green growth pathway now, as are an increasing number of investors, and that has to be good for us all.

Using Direct Air Carbon Capture Technology to Address Emissions

Posted on by TIMOTHYRADIER

The Octavia Carbon Story

To keep global temperatures from rising more than 1.5°C as outlined in the Paris Agreement and prevent the worst impacts of climate change, the world will need to reach net-zero carbon emissions by around mid-century through removal and storage of as much carbon dioxide from the atmosphere as is put. While strategies to reduce emissions — such as increasing renewable energy, improving energy efficiency, and avoiding deforestation — are critically important, they will not be enough on their own. Reaching climate goals requires strategies that actively remove CO2 from the atmosphere.

Direct Air Carbon Capture is a promising carbon sequestration methodology but has yet to scale due to high costs. Kenya-based startup Octavia Carbon, which FSD Africa has invested in, though Cohort 11 of the Catalyst Fund is the only company utilizing DAC technology in the Global South and is uniquely positioned to disrupt the cost structure of current DAC projects.

‍The Octavia Carbon Innovation

Octavia Carbon is one of about twenty companies around the globe that are building DAC technologies. The company has developed a prototype DACC machine and are currently working on a separate Minimum Viable Product (MVP) with a paying customer which will allow for iteration. The machine design will be replicated, with initial machines capturing 5-10 tonnes of CO2 per year and later machines capturing 100 tonnes of CO2 per year. By end of 2024, Octavia Carbon aims to produce at least one of these machines a day, adding some ~40,000 tonnes of CO2 per year in DACC capacity to the global market.

The Octavia Carbon Story
Fig 1: Octavia Carbon’s prototype machine. Source; Octavia Carbon

‍Project Location

Kenya, where Octavia Carbon is based, is uniquely well-suited for DACC thanks to natural endowments such as excellent geology for CO2 storage, geothermal activity, and unique renewables capacity and potential. The Kenyan Rift Valley is home to high-porosity basaltic rock that readily bonds with CO2-enriched water (carbonic acid – H2CO3), the fastest and safest form of permanent CO2 storage. Geothermal energy is also important for Octavia because ~80-90% of the energy required in DACC is low-grade (~80°C) heat energy. In Kenya, that kind of heat comes readily from the ground and is already a ‘waste’ product of geothermal power production.

For the electrical energy that DACC machines do require, it is ideal to have 24/7 green electricity, ideally coming right down the grid, and without too many competing uses for decarbonization (e.g., displacing fossil power plants). Kenya is uniquely well-suited for hydropower and geothermal energy, which today make up >90% of Kenya’s grid, and virtually 100% in Central Kenya. Few places in the world have any significant area covered by a 100% renewable grid. Kenya is also well endowed with solar (great irradiation and no seasonality), which could in the future complement the renewable energy mix even more.

‍Project Impact

Octavia Carbon will removes CO2 from the atmosphere and either stores it in rocks or makes it available to industries like floriculture which require carbon. This will catalyse the emergence of a new circular carbon economy that will use cheap air-captured CO2 to create further products like synthetic fuels/plastics. These direct activities will create innovative and sustainable economic growth, which will dramatically improve millions of livelihoods. Furthermore, there are additional applications for captured CO2, like enriching greenhouses with CO2, increasing plant photosynthesis and thereby leading to a higher yield, and making nutritious horticultural products more affordable and accessible to the populations that need them most. Indirectly, DACC can also eventually change the economics of geothermal energy by using abundant waste heat, co-utilizing injection wells, and providing a reliable offtake for excess energy.

‍Growth potential

The business model involves extracting carbon from the air using DACC technology to either store carbon in deep rock formations or produce and then sell CO2 for industrial use. The growth trajectory depicted in the financial models is promising. By the end of 2024, wirh an annual CO2 production rate of 40,000 tonnes per annum, key customers will include industrial CO2 buyers and carbon credit off-takers. Based on Octavia Carbon’s calculations, the price per tonne of CO2 will range between $300 and $500 depending on customer profile and market fundamentals.

The range of prices for capturing a tonne of CO2 varies between $775 to 1200 today depending on the technology choice, low-carbon energy source, and the scale of their deployment. Hence, Octavia Carbon’s projected price for a tonne of CO2, which requires additional extraction from the sorbent, would make it a global cost leader by mid-decade.

It also has significant growth potential due to the market and natural conditions in Kenya. The cost of production in Kenya is much lower compared to the Global North where graduate engineers cost ten times more than in Kenya. Furthermore, the world’s largest DACC company has also located their largest installations in countries with high geothermal activity such as Iceland. In Kenya, it is estimated that there are about 7,000 to 10,000 megawatts (thermal) of untapped geothermal energy beneath the Rift Valley region. Both the supply of renewable energy and talented engineers at a fraction of the cost provides a significant competitive advantage in Octavia Carbon’s scaling plan.

From Hope to Prosperity: A refugee’s journey of triumph in a settlement in Uganda

Posted on by TIMOTHYRADIER

In the challenging circumstances that refugees face, there are stories of resilience, determination, and success that deserve to be celebrated. Meet Amani, a remarkable young man who has not only found hope but has thrived in a refugee settlement in Uganda. Amani’s journey is a testament to the power of financial inclusion and the opportunities it can bring to refugees.

A New Beginning in Uganda

Amani fled conflict and persecution in his home country in South Sudan, and found solace in Uganda’s Bidi Bidi refugee settlement. Amani’s life took a transformative turn courtesy of the Financial Inclusion for Refugees (FI4R) Project supported by FSD Africa and FSD Uganda in partnership with local financial service providers.

Access to Financial Services

Upon arrival at the settlement, Amani was introduced to Equity Bank Uganda Limited, one of the financial service providers collaborating with FSD Africa and FSD Uganda. The other financial partners were VisionFund Uganda and Rural Finance Initiative (RUFI).

Amani opened a savings account with Equity Bank, which enabled him to save money and start planning for a better future securely. With access to credit and affordable loans, Amani seized the opportunity to start a small business, selling handmade crafts within the settlement.

 

Building Livelihoods and Empowering Others

Through Amani’s dedication and hard work, his business flourished. Amani not only improved his own living conditions but also extended support to other refugees in the settlement with the income generated. Amani became an inspiration, encouraging fellow refugees to explore entrepreneurship as a means to financial independence.

 

Financial Education and Community Support

Recognising the importance of financial literacy, Amani actively participated in financial education programs organised by project partners. Amani learned valuable skills such as budgeting, saving, and managing cash flow. Motivated by his own success, Amani began mentoring other refugees, sharing knowledge and empowering them to take control of their financial lives.

 

Resilience and Overcoming Challenges

Amani’s journey was not without obstacles. Like many other refugees, he faced uncertainties, limited resources, and occasional setbacks especially during the COVID-19 pandemic. However, through perseverance and the support of the refugee community, Amani remained steadfast in his pursuit of a better future. Amani’s resilience and determination served as a beacon of hope for others facing similar challenges.

Amani’s Impact and Dreams for the Future

Today, Amani’s success story continues to inspire many. He has become a respected member of the refugee settlement, actively participating in community development initiatives.

Amani dreams of expanding his business beyond the settlement’s boundaries, creating opportunities for fellow refugees and contributing to the local economy. Amani’s journey exemplifies the transformative power of financial inclusion and the impact it can have on the lives of refugees.

 

Conclusion

Through access to financial services, coupled with resilience and community support, Amani has not only thrived but has become a source of inspiration for others. Amani’s story highlights the importance of creating an inclusive world where refugees are given a chance to rebuild their lives, contribute to their communities, and dreams of a brighter future.

Together, we can work towards realising the vision of hope and inclusion for all refugees.

 

From Hope to Prosperity: A refugee’s journey of triumph in a settlement in Uganda

Posted on by TIMOTHYRADIER

In the challenging circumstances that refugees face, there are stories of resilience, determination, and success that deserve to be celebrated. Meet Amani, a remarkable young man who has not only found hope but has thrived in a refugee settlement in Uganda. Amani’s journey is a testament to the power of financial inclusion and the opportunities it can bring to refugees.

A New Beginning in Uganda

Amani fled conflict and persecution in his home country in South Sudan, and found solace in Uganda’s Bidi Bidi refugee settlement. Amani’s life took a transformative turn courtesy of the Financial Inclusion for Refugees (FI4R) Project supported by FSD Africa and FSD Uganda in partnership with local financial service providers.

Access to Financial Services

Upon arrival at the settlement, Amani was introduced to Equity Bank Uganda Limited, one of the financial service providers collaborating with FSD Africa and FSD Uganda. The other financial partners were VisionFund Uganda and Rural Finance Initiative (RUFI).

Amani opened a savings account with Equity Bank, which enabled him to save money and start planning for a better future securely. With access to credit and affordable loans, Amani seized the opportunity to start a small business, selling handmade crafts within the settlement.

 

Building Livelihoods and Empowering Others

Through Amani’s dedication and hard work, his business flourished. Amani not only improved his own living conditions but also extended support to other refugees in the settlement with the income generated. Amani became an inspiration, encouraging fellow refugees to explore entrepreneurship as a means to financial independence.

 

Financial Education and Community Support

Recognising the importance of financial literacy, Amani actively participated in financial education programs organised by project partners. Amani learned valuable skills such as budgeting, saving, and managing cash flow. Motivated by his own success, Amani began mentoring other refugees, sharing knowledge and empowering them to take control of their financial lives.

 

Resilience and Overcoming Challenges

Amani’s journey was not without obstacles. Like many other refugees, he faced uncertainties, limited resources, and occasional setbacks especially during the COVID-19 pandemic. However, through perseverance and the support of the refugee community, Amani remained steadfast in his pursuit of a better future. Amani’s resilience and determination served as a beacon of hope for others facing similar challenges.

Amani’s Impact and Dreams for the Future

Today, Amani’s success story continues to inspire many. He has become a respected member of the refugee settlement, actively participating in community development initiatives.

Amani dreams of expanding his business beyond the settlement’s boundaries, creating opportunities for fellow refugees and contributing to the local economy. Amani’s journey exemplifies the transformative power of financial inclusion and the impact it can have on the lives of refugees.

 

Conclusion

Through access to financial services, coupled with resilience and community support, Amani has not only thrived but has become a source of inspiration for others. Amani’s story highlights the importance of creating an inclusive world where refugees are given a chance to rebuild their lives, contribute to their communities, and dreams of a brighter future.

Together, we can work towards realising the vision of hope and inclusion for all refugees.

 

Saudi companies building confidence in African carbon markets – Nairobi’s voluntary carbon market auction

Posted on by Kihingu Inc

A rather extraordinary thing happened in Nairobi on Wednesday (14 June) which was that there was a voluntary market auction of carbon credits, the vast majority from Africa, in which the buyers were some 15 Saudi companies, including Aramco, and the national airline Saudia – all looking for offsets as part of their decarbonisation strategies. 2.2m credits were sold at an average price of $6.27 per tonne and, while the full details of this closed auction were not made public, the credits being sold came mostly from quite a large group of African countries (including Kenya, Egypt and Rwanda), with some from the Middle East and elsewhere.

The auction was the brainchild of Saudi company, the Regional Voluntary Carbon Market Company (RVCMC) and its CEO, Riham ElGizy. Having conducted a first, successful auction in Riyadh in 2022, ElGizy was determined to conduct the second in Africa.  Inspired by President William Ruto’s speech at the Africa Carbon Markets Initiative (ACMI) launch at COP27, ElGizy chose Nairobi and persuaded 15 Saudi companies to travel with her to take part in the auction, offsetting the emissions from the journey through the purchase of more credits. The auction was taking place against the backdrop of the Saudi Green Initiative which has set ambitious targets such as increasing energy generation from renewables to 50% of the total by 2030.

RVCMC is majority-owned by the Saudi sovereign wealth fund, the Public Investment Fund (PIF), with a minority of the shares held by the Saudi Stock Exchange.  It exists to facilitate voluntary carbon market trading, including – eventually – by investing in carbon-based businesses and setting up a dedicated exchange.

The auction event was, on one level, entirely practical – a professionally run event in which supply (of high quality, well diligenced credits) met demand.  The buyers knew they were going to get something (there was a guaranteed minimum) and they were also given the opportunity to bid for more credits on top.  There was a straightforwardly commercial aspect to it.

On another level, the event was highly symbolic. Here were high emitting companies from the world’s most prominent petrostate buying offsets from Africa, the continent that contributes the least to global emissions and yet experiences the damaging effects of climate change more than any other. Saudi Arabia’s annual C02 emissions are 19 tonnes per capita while Kenya emits a mere 0.4 tonnes per capita.

RVCMC, it would appear, had brought the Saudi buyers to Kenya to emphasise two things in particular: first, that Africa had an abundant supply of something that was valuable to them (carbon credits) and was therefore a place where business like this could and should be done.

Secondly, that there is a human, or societal, imperative to decarbonisation that underpins why well-functioning carbon markets matter.  We should be concerned, and even offended, not only that African countries bear enormous economic costs as a result of climate change but that it is the poorest or most vulnerable in these countries that suffer the most. And it is an unfortunate fact that Africa is able to illustrate these points more starkly than anywhere else.

For those who were present at this auction, this unusual display of both commercial competence – through the delivery of a marketplace where globally significant companies could safely transact – and organisational purpose, centred on people and planet, was striking and inspiring.

There were a number of other takeaways.  First, the close alignment of this event with the broad objectives of the upcoming Africa Climate Summit to be hosted by Kenya and the African Union on 4-6 September.  These objectives include presenting Africa not as the perpetual planetary victim but as part of the climate change solution – with some of the world’s most significant carbon sinks in its forests and savannahs, and abundant renewable energy capable of driving the green industrialisation strategies that will produce tomorrow’s carbon unicorns. This could have been a Government of Kenya promotional event – only, remarkably, it wasn’t.  This was entirely a RVCMC initiative. So perhaps this auction was more proof that attitudes towards Africa are shifting, both inside and outside Africa, and starting to coalesce around a vision for Africa that celebrates the opportunities the continent offers and doesn’t obsess about its needs.

On pricing, the achieved price of $6.27 per tonne, is consistent with what is available on the market.  It is a reasonable reflection of the challenges that voluntary carbon markets are going through, as a result of regulatory uncertainty, macroeconomic conditions that are unhelpful to carbon markets and shocks that have come out some projects that keep raising concerns about market integrity.

While we are told that the prices achieved were very much in line with the organisers’ expectations, there obviously needs to be a massive increase in both prices and volumes for voluntary carbon markets to contribute meaningfully towards the shortfall in climate finance in Africa which is about $250bn per annum (as calculated by Climate Policy Initiative in last year’s Africa Landscape of Climate Finance).

The price achieved by this auction is an expression of just how nascent this market is and how we still need to go through a lot of hard market building graft (putting place market-leading regulation, building a much bigger pipeline of investible carbon projects etc.) before prices start to rise – as most observers believe they inevitably must.  In that sense the auction was a useful reality check. It is possible to get higher prices through highly bespoke transactions or for specialised sectors such as Direct Air Capture but, generally, prices still have a way to climb.

FSD Africa, with its strategic focus on driving more innovation in African financial markets, is committed to carbon market development not just because carbon markets are good for the planet and good for communities (often rural) who stand to benefit when carbon finance flows – but because they will also make financial markets more innovative through the de-risking and cash flow that carbon finance brings.

In other words, carbon finance is highly leverageable – but, for it to play that role, other investors need to believe that it is real – as real as cash. Blockchain and other technologies may eventually be able to make carbon markets work more efficiently but the core challenge today is to make them believable.

That is why market integrity, underpinned by permissive regulation that is also clear and robust, is so essential and why FSD Africa is lending its support to the Africa Carbon Markets Initiative (ACMI) and others working hard to build the soft infrastructure, and capacity, that these new markets clearly need.

It is also why successfully completed transactions, such as we saw from RVCMC earlier this week, are also so important, a signal of growing confidence and of even bigger and better things to come.

Public prosperity in Africa through private investment – addressing Africa’s finance gap

Posted on by TIMOTHYRADIER

No region’s challenges are simple – let alone a continent as diverse and varied as Africa. Distilling from this tangled nexus of economic, political, and cultural challenges a single issue is made all the more difficult because of the rate at which Africa is changing. During the last decade, the region’s evolving dynamics have led us to the adoption of a key principle: promoting financial inclusion cannot be effective without addressing the systemic, structural problems in these countries’ financial systems.

Private financing – matched with state encouragement – underpins any significant infrastructural improvement, wherever you look in the world. But Africa has been starved of domestic private investment, and this shortfall will only become more acute as the continent seeks to equip itself to compete as a hub for sustainable, green economic development which will enrich equitably and liberate ordinary Africans from being hostages to the ravages of climate change.

The past decade has been bookended by two era-defining crises: the global financial crisis (or “Great Recession”) and Covid-19. In 2012, the newly established FSD Africa set out in a world still reeling from the cataclysm of a financial meltdown which began in the West but soon rippled beyond. In 2023, as we look back on ten years, Africa is still struggling to cope with the wake of another crisis – a global pandemic which saw the precariousness of global health inequalities laid bare, compounded by a war in Europe which has disrupted the continent’s access to vital commodities.

But despite these challenges, Africa’s growth has been meteoric – only two years after the 2008 crash sub-Saharan Africa constituted among the fastest growing regions on earth, recording a GDP growth of 6%, and according to the World Bank the region’s emergence from the recent pandemic has seen it beat almost every economic forecast. This growth, whilst encouraging, hides fundamental issues, however – ones which we are determined to address.

While certain African states have witnessed meteoric economic growth, progress has not been consistent or evenly distributed – by 2012, GDP in Sub-Saharan Africa had fallen to 2.7%, while double-digit inflation in Eastern Africa arising from increased food prices and higher fiscal deficits had ushered in a period of macroeconomic instability and unpredictability.

Indeed, a growing young population (Africa will soon take its place as the world’s most populous continent, and 40% of Africans are not yet 14 years old) creates an acute and urgent need for steady employment which facilitates aspiration. In order to fully deliver the economic benefits of employment, these jobs need to be formalised, delivering adequate protections and measurable contributions via tax and spending.

Authoritative commentators have identified the need for Africa’s prosperity to be underpinned by properly invested, formal and long-term economic drivers. The Brookings Institution Foresight Africa notes that, “Despite two decades of solid growth, industry, tradable services and agro-industry are still a small share of African employment and output”.

But the construction and expansion of the formal sector requires significant initial capital outlays, which Africans are consistently denied: domestic private investment as of 2012 had run well below the levels necessary for rapid industrial growth- at about 11% of GDP since 1990. The World Bank’s figures also indicate a worrying trend – investment in infrastructure with private sector participation in sub-Saharan Africa plummeted from US $15bn in 2012 to just $5bn in 2019.

Over the last ten years, FSD Africa has pro-actively worked with governments, regulators, market authorities and financial institutions to address this shortfall, and to create the environment necessary for private capital involvement via policy changes, regulatory evolution and clear, transparent frameworks which inspire investor trust. To stimulate a growth in domestic private investment, we have devised a concerted campaign to develop innovative new financial vehicles and blended finance instruments. But above all, we have sought to correct a misconception prevalent among international investors – and domestic investors too – that Africa is a high-risk investment.

We are proud of this ten-year record, but we know better than anyone that we need to accelerate these efforts. As Africa confronts the deadly consequences of climate change, the urgency of attracting more private investment to the continent only grows. Concerningly, the gulf between what Africa needs to fund its plans to tackle climate change, and what is actually available from public finances, is vast – running at almost US $250bn a year. Strikingly, in the region arguably most at risk from ongoing climate change, Africa’s private sector share of climate finance is lower than any other region, at 14%.

Sobering as these figures are, the reasons to be optimistic about Africa’s economic trajectory are only multiplying. Partly because of a traditional lack of financial services, Africa has emerged as a leader in mobile money, which is democratising financial services in even the most marginalised communities, and rapidly enfranchising its young people in the formal economy, generating exponential opportunities for entrepreneurs and small businesses to access credit and financing. Meanwhile, not unconnected with the rise of mobile payments, a burgeoning tech sector on the continent is attracting the attention and investment of investors globally (Africa has produced four tech unicorns and counting). Finally, Africa’s great peril could, with proper investment and management, become a major economic engine: the development of a carbon offset and credit industry, rewarding states for the preservation of their ecological wealth, could spur a great inflow of capital to the continent, and ensure its economic development does not come at the price of its wondrous natural wealth.

These are reasons to be profoundly hopeful, but no room for complacency. Our work to construct financial markets which serve Africans, deliver sustainable, green and equitable economic growth, and enables this great continent to realise its unmatched potential, must continue apace.

Protecting our oceans: The Blue Wave Expedition

Posted on by TIMOTHYRADIER

The ocean is a vital part of human life and the global economy, providing food, jobs, and livelihoods for over 3 billion people. However, climate change, overfishing, and pollution are threatening the ocean and the prosperity of people in developing countries. Coral reefs, mangrove forests, and marine populations have already suffered, with a third of global fish stocks depleted. If these trends continue, no stocks may be left for commercial fishing in the Asia-Pacific region by 2048. By 2052, the weight of plastic in the ocean could surpass that of fish, and up to 90% of coral reefs may be lost. Despite these challenges, the ocean remains the planet’s largest natural asset, delivering countless benefits to humanity.

  • The ocean is responsible for the oxygen in every other breath we take. It supplies 15% of humanity’s protein needs.
  • It helps to slow climate change by absorbing 30% of carbon dioxide emissions and 90% of the excess heat trapped by greenhouse gases.
  • It serves as the highway for some 90% of internationally traded goods, via the shipping sector.
  • If the ocean were a country, at several trillion dollars per year of economic activity, the ocean would rank 7th on the list of largest nations by GDP.
  • It is the source of hundreds of millions of jobs, in fisheries, aquaculture, shipping, tourism, energy production and other sectors.

Protecting the ocean from the many threats it faces is not only a moral imperative but also a promising financial opportunity. By responsibly managing the ocean, we can benefit both the environment and the economies of emerging markets. Before the COVID-19 pandemic, the ocean economy was on track to double between 2010 and 2030, reaching $3 trillion and employing 40 million people. The financial sector is starting to recognise the potential of a healthy ocean. It has a key role in shifting the global economic system towards rebuilding ocean prosperity, restoring biodiversity, and regenerating ocean health.

A thriving Blue Economy supports the sustainable use of coastal and marine resources, promoting economic growth, better livelihoods, and more jobs while preserving the integrity and health of these ecosystems. However, keeping the world’s oceans clean will require ambitious projects supported by innovative financing.

It’s upon this basis that FSDA and BFA Global partnered to launch TECA in April 2022; a first-of-its-kind venture launcher, to create fintech start-ups with solutions that enable climate resilience in the most vulnerable communities around the world, with an initial focus on Africa. The first wave, “The Blue Wave”, was set out to address challenges affecting the Blue Economy. It is expected that future waves will take on other challenges on climate change. The team kicked off activities by building a community of diverse, and engaged experts and enthusiasts to collaboratively ideate, strategise, and connect to provide feedback, and support a network for prospective founders as they launch their ventures.

BFA built an active online community interested in TECA and the Blue Economy in Africa on Circle, which onboarded 221 members who are active on the platform to date. The Wave Expedition Series; a series of online webinars in which the TECA Community learnt about and discussed opportunity areas and contributed to building the wave’s ‘Atlas of Opportunity’, ran from May to July 2022 with a total of six expeditions.  

Sourcing for the first cohort of entrepreneurs was completed in August 2022, with selection based on talent, passion and commitment to building innovative solutions for a climate-resilient future. 30 fellows/entrepreneurs were onboarded in the inaugural wave with 50% being female, and representing 7 African countries: Kenya, Tanzania, Uganda, Ethiopia, Egypt, South Africa and Zimbabwe. The fellows kicked off with a huddle in Diani on the Kenyan coast in September 2022, with the huddle objectives being team bonding and trust building, testing hypothesis, exposure to the blue economy and working towards goals as a team (brainstorming together and building together).

 

TECA Huddle 1

 

Related article: 4 Innovation Opportunities to Unlock the Potential of Blue Carbon

Over a 4-month period, the fellows were taken through a mentorship and coaching program, including a “How I Launched” series to refine their venture ideas, after which they did one mock pitch, then a final pitch before a panel. The venture ideas were scored based on a 5-criteria matrix: compelling vision, team-solution fit, scalability/viability, impact on communities in blue spaces, and impact on blue ecosystems. 7 ventures demonstrated that they had refined their problem-solution fit and were working towards a minimum viable product (MVP), and thus qualified for an initial grant of £55,000. TECA will continue to build a diverse and engaged community through the Circle platform and publication of knowledge products. They will also work toward securing further funding for a second wave in FY23-24. 

Here are some of the initiatives that have been implemented by the communities in Kwale county as discovered in the expedition:

Mikoko Pamoja Mangrove Restoration

Nestled between sandy beaches, still waters and coconut palms, the Mikoko Pamoja project — Swahili for “mangroves together” — has for nearly a decade quietly plodded away, conserving over 264 acres of mangroves while simultaneously planting new seedlings. About 4,000 new mangroves are planted yearly, steadily swelling Gazi Bay’s forests. The project is an integrated people-centred approach, with a particular focus on women, to address the triple crisis – poverty, climate change, and nature – at the local level.

 

Mangrove

Restoring mangroves is beyond conventional forestry. Besides developing nurseries and supplying seedlings, there is a lot more that must be considered in mangrove restoration, according to Swabra Mohammed; the secretary of Gazi Women Group. Her group established a nursery in 2018 and have sold seedlings for restoration. To the fellows, the huddle was an eye-opener. Over and above species zonation and assessing hydrology, they gained knowledge on identifying mature propagules of various species. The huddle was holistic and practical as it enabled the fellows to identify the challenges and opportunities in mangrove ecosystem restoration and blue carbon monetisation. With deliberate conservation, comes natural perks. Fisherfolk casting nets in nearby shallow waters have seen an abundance of species return to the mangrove-laden shores, now a breeding ground for fish flourishing in the expanded habitat. And project leaders hail the benefits of cleaner air for people who live in or near the forests.

Mangrove 1

Kibuyuni Seaweed Farming

It is estimated that Kenya earns around $2.5 billion annually from its ocean resources, a positive indication that there can be a potential growth of the country’s GDP through the embrace of Blue Economy. At Kibuyuni village in Kwale County, a group of 50 members is already making fortunes from seaweed farming. This project has improved the livelihoods of many families in the area.

Seaweed farming

According to Fatuma Mohamed, who chairs the Kibuyuni Seaweed Farmers Group, the project began in 2010 after KMFRI, conducted research that identified a seaweed species suitable for the area. The group, which at that time had 27 members, received funding from PACT Kenya in 2011 to improve their project. They currently cultivate two seaweed species, with a harvest cycle of 30-45 days, and sell around 50 tonnes, generating sales of approximately KES 1.5 million. The group invests their earnings in table banking and merry-go-round initiatives.

Seaweed farming

We are just beginning to explore how innovation can help us build climate resilience. It’s essential that more people get involved in supporting the development of solutions that can meet the challenges we face now and in the future, and ensure that we use our natural resources in a sustainable way.

TECA Huddle Participants

The 2nd TECA blue economy wave will launch soon in partnership with BFA, IUCN and Ocean Hub Africa and aims to attract 50 fellows and launch 10 new ventures across sub-Saharan Africa.  This was announced in the ocean conference, where the 7 grantees from wave 1 had an opportunity to learn more about the blue economy and pitch to potential funders.FSD Africa is committed to playing its part in bringing together the right people and resources to create a world that is better prepared for the effects of climate change. By serving as a catalyst and bringing people together, FSD Africa can help create a more climate-resilient world.

Photo credits: BFA Global